A Fiscal And Monetary Policy System Research Based On The FTPL

At the time, people think inflation are only related the monetary policy, especiallyhighly positive correlation the money supply. The classical theory in a long time hasbecome the incontrovertible truth in macroeconomics, also become the operationparadigm of lots national central bank in a period of time. But in reality-such as theBrazil and China in90s--the former80s outbreak of inflation, the monetaryauthorities greatly reduced the money supply did not have any effect; while China hasappeared low inflation and high money supply growth coexist "Price Paradox"phenomenon. These phenomena are difficult to explain with the traditional monetarytheory. In this context, the academia researches other important factors of inflation.Leeper (1991), Sims (1994), Woodford (1994,1995) put forward Price Level ofFinance Theory–FTPL This theory puts forward the strong question for CurrencyQuantity Theory.First, this paper mainly introduces the research background, research purpose andrecently achievement of the FTPL. At the aspect of theory, this paper first start fromthe currency quantity theory, and expounds the price decision theory of thedevelopment process and weak form price level of finance theory and the strong formprice level of finance theory, Through the cross time government budget identity, thispaper introduces the price level of finance theory theoretical basis. Secondly, thispaper summarizes the FTPL in the empirical aspects of the different practice, and putsforward FTPL is not only a theory, in reality there are also exist. In empirical aspect,this paper according to30years of data of China’s reform and opening up forconstructing MSVAR model to check our policy properties. The empirical resultsshow that between1981and1997, China’s policy nature tend to Ricardian system In1998to2010, China’s policy nature tend to not Ricardian system. In order to study theinflation in Ricardian system, this paper then pick the quarterly data between1998to2011, using SVAR model for further analysis on China’s monetary policy and fiscalpolicy in the control of prices interaction. The results show that at the present stage ofthe Ricardian system, China’s current inflation waves can be explained by the fiscalpolicy proportion is greater than the proportion of monetary policy explanation, theexpansionary fiscal policy is the cause of this wheel inflation main reason, though,such as reducing the money supply tighten monetary policy to reduce inflation, but in the near term, reduce the deficit spending, such as throttle tighten fiscal policy effectis more apparent. In the above the basis of empirical analysis, this paper puts forwardmore effective control inflation new ideas. Specific include transformation functionfinancial concepts, enhance the government’s debt risk consciousness, constraint at alllevels of the government deficit financing behavior, Enhance the function of thepeople’s bank of China independence and credit independence, increase theformulating and implementing monetary policy autonomy, improve the currencyregulation and control mechanism, etc.